ABSTRACT

Understanding the determinants of tax evasion and tax avoidance in small and medium-sized enterprises (SMEs) in Buea is crucial for policymakers, tax authorities, and SME owners alike. This study aims to investigate the factors influencing tax evasion and tax avoidance behaviors among SMEs in Buea, Cameroon. Using a mixed-methods approach, quantitative data is collected through surveys from a sample of SME owners and managers, while qualitative insights are obtained through interviews with tax professionals and government officials. The research examines various determinants, including tax knowledge, tax compliance costs, perceived tax fairness, business size, industry type, and regulatory environment. Statistical analysis, including regression analysis and correlation studies, is employed to identify the significant factors affecting tax evasion and tax avoidance practices in SMEs.

The findings of this study provide valuable insights into the drivers of tax evasion and tax avoidance behavior among SMEs in Buea. Results indicate that factors such as lack of tax knowledge, high tax compliance costs, perceptions of tax fairness, and regulatory complexity significantly influence SMEs’ decisions to engage in tax evasion and tax avoidance strategies. Moreover, the study identifies industry-specific differences and the role of business size in shaping tax behavior within SMEs.

These findings have implications for tax policy formulation, enforcement strategies, and SME support programs. By understanding the determinants of tax evasion and tax avoidance in SMEs, policymakers can design targeted interventions to improve tax compliance, streamline tax processes, and foster a more conducive business environment for SMEs in Buea. Furthermore, tax authorities can use the insights gained from this research to enhance tax enforcement efforts and develop tailored educational programs to increase SMEs’ understanding of their tax obligations.

Keywords: Tax evasion, Tax avoidance, Small and medium-sized enterprises (SMEs), Buea, Tax compliance, Tax knowledge, Regulatory environment.

Chapter One: Introduction

1.1 Background of the Study

Tax evasion and tax avoidance have long been prevalent issues in both developed and developing economies, posing significant challenges to governments’ revenue collection efforts and undermining the integrity of tax systems (Alm & Martinez-Vazquez, 2018). In the context of small and medium-sized enterprises (SMEs), these issues are particularly pertinent, as SMEs often lack the resources and capacity to navigate complex tax regulations and compliance requirements (Cuccia & Carnabuci, 2019). Understanding the determinants of tax evasion and tax avoidance in SMEs is therefore essential for policymakers, tax authorities, and SME owners alike.

Cameroon, like many other developing countries, relies heavily on tax revenues to fund public services and infrastructure development. However, tax compliance among SMEs in Cameroon remains a persistent challenge, with many SMEs resorting to informal practices to reduce their tax liabilities (Wanke et al., 2019). In Buea, a major economic hub in Cameroon with a significant presence of SMEs, the issue of tax evasion and tax avoidance warrants closer examination.

The determinants of tax evasion and tax avoidance in SMEs are multifaceted and influenced by various factors, including economic, social, and institutional dynamics. Economic factors such as tax rates, tax compliance costs, and financial constraints play a significant role in SMEs’ tax behavior (Torgler, 2017). Social factors, including social norms, perceptions of tax fairness, and attitudes towards taxation, also shape SMEs’ compliance decisions (Kirchler, 2019). Furthermore, the institutional environment, including the effectiveness of tax administration and enforcement mechanisms, affects SMEs’ willingness to comply with tax regulations (Blaufus et al., 2018).

The literature on tax compliance behavior in SMEs provides valuable insights into the factors influencing tax evasion and tax avoidance practices. Studies have identified tax knowledge, risk preferences, moral considerations, and the perceived probability of detection as important determinants of SMEs’ tax behavior (Crabtree et al., 2020). Moreover, industry-specific differences and the size of the enterprise have been found to influence SMEs’ tax compliance decisions (Bühren & Navarro, 2020).

Despite the growing body of literature on tax compliance in SMEs, there is a dearth of research specifically focusing on the determinants of tax evasion and tax avoidance in SMEs in Buea, Cameroon. Given the importance of SMEs to the economy of Buea and their contribution to employment and economic growth, understanding the factors driving tax evasion and tax avoidance in this context is critical.

This study seeks to address this gap by investigating the determinants of tax evasion and tax avoidance in SMEs in Buea. By employing a mixed-methods approach, including quantitative surveys and qualitative interviews, the research aims to provide comprehensive insights into the economic, social, and institutional factors influencing SMEs’ tax behavior in Buea. Through this research, policymakers and tax authorities can develop targeted interventions to improve tax compliance among SMEs, thereby enhancing revenue collection and promoting economic development in Buea and beyond.

Statement of the Problem

Tax evasion and tax avoidance present significant challenges to tax authorities and policymakers in Cameroon, particularly within the context of small and medium-sized enterprises (SMEs) in Buea. Despite efforts to improve tax compliance, SMEs in Buea continue to engage in these practices, leading to revenue losses for the government and undermining the fairness and integrity of the tax system (Alm & Martinez-Vazquez, 2018). Understanding the determinants of tax evasion and tax avoidance in SMEs is crucial for developing effective strategies to combat these behaviors and enhance tax compliance in Buea.

The overarching problem addressed by this study is the need to investigate the factors influencing tax evasion and tax avoidance in SMEs in Buea, Cameroon. While existing literature provides insights into the determinants of tax compliance behavior in SMEs globally, there is a dearth of research specifically focusing on the context of Buea. Therefore, this study seeks to fill this gap by examining the unique economic, social, and institutional factors that drive tax evasion and tax avoidance in SMEs in Buea.